Revenue Reserve and Capital Reserve are both part of a company’s reserves, but they differ in nature, purpose, and sources.

Revenue Reserve is created from the company’s operational profits earned during its normal business activities. It includes retained earnings, general reserves, or specific reserves like dividend equalization reserves. The primary purpose of revenue reserves is to strengthen the company’s financial stability, fund future expansion, or distribute dividends to shareholders. Since it arises from regular business profits, it can be used for general business purposes or to meet unforeseen contingencies.

On the other hand, Capital Reserve is created from non-operational profits or capital-related transactions, such as the sale of fixed assets, revaluation of assets, or premiums from share issuance. These profits are not earned through normal trading activities. Capital reserves are usually earmarked for specific purposes, like writing off capital losses, funding long-term projects, or issuing bonus shares. Unlike revenue reserves, they cannot be used to pay dividends because they don’t arise from the company’s core operations.

Revenue reserves originate from operating profits and can be used for general purposes, while capital reserves stem from capital-related gains and are restricted to specific purposes. Both play vital roles in a company’s financial health.